The big news on the tax front from last week is that the individual tax deadlines for federal and some state income taxes were extended to May 17, 2021. Thirty-five states, including New York and California, have chosen to extend their deadline in keeping with the IRS decision — be sure to check with your state and local tax authorities to see if this applies where you do business.
A few other tax reminders related to the extended deadline:
· The corporate, trust, and first-quarter estimated tax deadlines have not changed. These are still due April 15.
· There is not any specific guidance on whether the May 17 deadline also applies to contributions for 2020 traditional IRAs, Roth IRAs and HSAs. We will provide additional information when it is available.
· If you need an extension beyond May 17 for your 2020 taxes, you can still file the regular extension form to extend your filing window to October 15. The deadline to submit this form is now May 17, not April 15.
· If you file for an extension until October 15, you must file by then but you have to pay what you owe by May 17. Otherwise, interest and penalties will start to apply after that date.
The IRS is advising taxpayers not to file amended returns for unemployment income, changing payment dates or the Premium Tax Credit.
If you haven’t filed your return already, you have a little extra time, but it’s best to get it squared away as soon as possible—especially if you are expecting a refund. However, if you have already filed your taxes, you may be wondering if, given the new COVID-19 relief plan tax changes, you need to file an amended return. Two examples of recent significant tax implications on your return include:
· Unemployment income up to $10,200 is potentially considered tax-free by the IRS under the American Rescue Plan Act. This applies to individuals with annual incomes of up to $150,000.
· If your 2020 return has already been filed and you reported an excess advance Premium Tax Credit repayment.
If you have already filed your taxes, and want to change your payment date to May 17, you will need to take action to change it. However, the IRS does not recommend filing an amended return. The IRS states that to cancel payment, you can do so by contacting the U.S. Treasury Financial Agent at 1-888-353-4537. Payment cancellation requests need to be made by 11:59 p.m. ET two business days before the scheduled payment date. You must then reschedule the automatic payment or mail a check to the IRS.
The short answer about whether to file an amended return in the cases above is, “No.” The IRS is advising taxpayers that they can handle adjusting your return without you filing an amended return. Even if you did not claim the unemployment income as non-taxable or the Premium Tax Credit, the IRS is advising you not to file an amended return to correct these amounts. This could change, so watch for additional guidance as it becomes available.
A few facts about the Premium Tax Credit—does it apply to your freelance taxes? As a reminder, the premium tax credit repayment may apply if you or someone in your family received advance payments of the premium tax credit through the Health Insurance Marketplace. To claim it, you must complete Form 8962, Premium Tax Credit. This would be based on the information in Form 1095-A, your Health Insurance Marketplace Statement, which provides you with information about your health care coverage. If you haven’t filed already, beware that filing your return without reconciling your advance payments will delay your refund. You must file an income tax return for this purpose even if you are not otherwise required to do so.
If you choose not to get advance credit payments, you can claim the full amount of the premium tax credit that you are allowed when you file your tax return. This will increase your refund or lower the amount of tax you owe.
When should freelancers file an amended return?
Excluding the cases above, there are times when filing an amended return is necessary — especially if you have made a mistake. In general, if you made a math error on your return, the IRS may correct it when processing your original return. If you didn’t include a required form or schedule, the IRS will also send you a notice via U.S. mail about the missing item.
You can file an amended return if you need to fix an error or if you forgot to claim a tax credit or deduction. You should use Form 1040X to amend a federal income tax return that you filed before. Make sure you check the box at the top of the form that shows which year you are amending.
If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS. This year the IRS may let some taxpayers e-file an amended return, unless this applies to you, you’ll need to file a paper version of Form 1040X and mail it to the IRS.
To claim a refund, file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.
Here are some specific cases when the IRS indicates you may need to amend your federal tax return:
· If you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return.
· If your changes have to do with other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. If you don’t, this will cause a delay in processing.
· If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 16 weeks to process. You will receive any additional refund you are owed.
· If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.
If you can file your taxes and pay by May 17, it’s best to start now and complete your individual taxes. While the deadline extension is automatic, filing sooner rather than later, especially if you are anticipating a refund, is the best way to expedite having that cash back in your bank account — even before the extended May 17 deadline arrives.
Jonathan Medows is a New York City-based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He provides tax, accounting and business articles for freelancers on his website, http://www.cpaforfreelancers.com, which also features a blog and a comprehensive freelance tax guide. Please note, due to the high volume of inquiries in regard to COVID-19, Jonathan is not able to respond to individual requests for information at this time.